Goldman's Oppenheimer: Rising Bond Yields Pose Growing Risk to Equity Returns

Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer says equities remain near record highs largely on the back of robust earnings growth, but rising bond yields are an increasing threat to further gains. The 30-year U.S. Treasury yield has climbed above 5% for the first time since 2007, with comparable yields in Germany, Japan, and other major markets now ranging from 3.5% to 6%.
Oppenheimer notes that the historical pattern of rising yields reflecting stronger growth — and supporting stocks — is breaking down: the correlation between equities and bond yields has turned negative, as higher long-term rates compress equity risk premia and pressure valuations, particularly for long-duration growth stocks and "defensive" or "quality" names that had traded as bond proxies.
He said investors should expect more moderate returns from here after a strong run, and warned that if oil-related disruptions or inflation expectations push yields higher through the second half of the year, markets face a real risk of a correction.